Wednesday, November 03, 2010

The Great Potash Debate

Seeing all the news stories out there about potash this week, I feel like most Canadians did during the Great Summer Census Crisis of 2010. You see, I keep going back on forth on whether or not I support the Potash Corp takeover...then it occurs to me I don't even have a clue what potash is.

So after a quick trip to wikipedia, I learned that potash is a potassium compound that has been used "since the dawn of history". It is used to manufacture glass, soap, and soil fertilizer, and Canada produces close to a third of the world's potash. Also, "the Potashes" were a 19th century New York street gang and Dan Potash is a reporter for FSN Pittsburgh.So why should politically-minded Canadians care?

Well, Australia-owned BHP Billiton Ltd. has put in a bid to buy Potash Corp (hereto after refereed to by its TSE ticker symbol - "POT") and this has, of course, stoked fears among economic nationalists. After all, first we give up control over potash...the next thing you know kangaroo zombies are running free in the streets and we're all drinking Foster's.

Of course, as is so often the case when talking about economic nationalism, the reality is a bit murkier. Even though the perception exists that POT is a Canadian company, POT isn't crown controlled anymore, and Canadian shareholders only own 49% of it. It's not exactly a case of "an American-controlled company being taken over by an Australian-controlled company", as Stephen Harper described it, but it's not like we're selling the Saskatchewan Roughriders here.

Not surprisingly given how sexy an issue potash is, this story has become hugely political. Brad Wall, after seeing Shawn Graham turfed over the New Brunswick Hydro "takeover", has come out swinging against this deal. He has no doubt given Danny Williams a call for advice, and there have been suggestions he may run his own ABC campaign next election should Harper approve the takeover.

Although Investment Canada has approved the sale, the final decision rests with the federal government - and given the Minister responsible for the file is Tony Clement, there's a good chance the Harper government will find a way to screw this one up. A verdict is expected later this afternoon (presumably it will be announced over Twitter) - what Harper and Clement decide is anybody's guess.

If the decision were based purely on ideology, they'd no doubt approve the deal. But this government long ago gave up the pretense that it bases decisions on ideology. Canadians are blissfully unaware of this issue so, politically, there doesn't appear to be anything but downside in allowing the POT takeover to move ahead.

But the Census is an invaluable tool for business and government. And Potash is a multi-billion dollar industry.

These are important decisions that, likely, will impact the country more than 90% of what the political pages are usual filled with - name calling, horse race numbers, election speculation, meaningless scandals, etc, etc...

By the time we do, we won't know it because people make the same noise over trivialities like the census and potash.

Potash is one of the biggest companies in Canada, so if you think this subject is "trivial" it's probably because you live in Toronto.

And the federal protection that is given to our banks and media companies should lay to rest the belief that we are a "free market" country. Like any other western country, we fluctuate between being free market and protectionist based on whatever ideology best serves our interests.

On the complicated front, you didn't mention the other major issue at stake here and one significant but not as major issue, at least as far as Saskatchewan is concerned.

The significant but not as major issue is that POT is headquartered in Saskatoon (even though the CEO lives in Chicago). While resource/mine related jobs can't move - as supporters of the deal rightly claim - the management and head office and administration certainly can.

The really big other issue here is Canpotex. Now this takes a perhaps boring and complicated file and makes it even more boring and complicated, but the nub of the issue is not just about who owns this company, but who runs the entire potash industry.

Canpotex is, if you will allow a simplification, like OPEC for potash. Canpotex manages the entire Saskatchewan potash exporting industry (excluding Canadian and US sales) and is the world's largest exporter of potash. With a similar Belarussion cartel, they've cornered 70% of the market. Almost 60% of potash exported by Canpotex comes from POT and BHP says it wants to exit Canpotex and export directly.

The implications for pricing, jobs, etc. are huge. This is what is driving the concerns probably even more than losing yet another Canadian resource company to foreigners under Harper. This is why it is being compared to NEP for Saskatchewan and why the consequences to federal Cons in Saskatchewan could be big and why Harper is desperately trying to pretend that he has nothing to do with this decision.

Update: Clement has announced Harper, er, he will not approve the deal.

I am floored.

I thought that for once in 5 years we might have a principle-based decision. Maybe I shouldn't be surprised Harper put electoral politics about free market principles any more. But I am.

I thought this was a for sure approval based on national economics, free market principles, conservative principles (no that's not an oxymoron), Canada being "open for business", i.e. everything Harper pretends to claim.

No body in Australia drinks Fosters. Couldn't find it in the pubs or any stores. Was in total shock when I took the family to Sydney for New Year's Eve fireworks (Note: best reasonably priced place to view them is Goat Island (in the harbour)).

Other misnomers that I have confirmed with Aussie friends since: couldn't find Koala Springs anywhere either, and "Shrimp on the Barbie" is nowhere to be found. I sought them out everywhere, and desperation for it made me look at the menus of over 30 restaurants along Bondi Beach, only to find it at one high end place where shrimp was the most expensive item on the menu.

BTW, Your analysis is as accurate as ever: "If the decision were based purely on ideology, they'd no doubt approve the deal."

Selling Potash is to Saskatchwean is what selling all big 5 banks to foreigners at once would be to Toronto and Ontario.

The banks, and media companies, and telcos and airlines, central Canadian and Toronto based industries are all protected of course, and that doesn't seem to impact Canadian free markets.

Potash is a far more important company to Canada than any bank or media company. It has centuries of reserves of a mineral critical to people around the world eating. To outsource our stewardship of this resource would be abdication of our responsbility to ourselves and the world community.

I am a Potash shareholder who is overjoyed. Temporarily poorer, but in the long term wealthier because of this intelligent decision made today.

Approving the Potash bid would have led to a national unity crisis, because this would have been NEP II.

This is what is driving the concerns probably even more than losing yet another Canadian resource company to foreigners under Harper.

Five minutes later, Ted Betts wrote:

I am floored.

I thought that for once in 5 years we might have a principle-based decision. Maybe I shouldn't be surprised Harper put electoral politics about free market principles any more. But I am.

Ha! So you bash Harper before the decision because you think he won't go your way, and then when he *does* take your side after all, you bash him again. (Because he did it for the wrong reason, or something.)

FWIW, Harper definitely made the wrong decision. This sends a terrible signal to foreign investors that we will pick and choose who can invest here based simply on political pressure.

And the claim that we'd "lose control" is just silly; as long as the potash is physically located here and owned by the Crown - and also regulated and taxed here - the Canadian/Saskatchewanian governments have "control".

Where did I criticize Harper for his position before? I think all that I did was lay out the reasonings this is such a big issue for Saskatchewan. I think we need to recognize that and accept that this is a huge deal for Saskatchewanians and those in the potash industry. It is a big deal.

To dismiss it as some have (Harper saying it's just an Australian company buying an American company was pretty arrogant; others have said its just a company like any other which it isn't; or that it won't have any impact on POT shareholders or the foreign investment market) is unfortunate and not helpful and incorrect.

But recognizing those difficult realities does not mean I think he should have rejected the deal. I am very much an open markets kind of guy. And after Harper's rejection of the BHP deal, after Harper's rejection of the Taseko mine development, Harper's rejection of a telecom deal, Harper's attempt to tell Craigslist what it can and cannot advertise, Harper's rejection of any landing deal with UAE to protect Air Canada... what is a foreign investor to think of Canadian opportunities when there is still such uncertainty in the market and now we add direct political interference into the mix?

Really, I wouldn't worry so much about what foreign investors "think"; Canda is, and always has been, open for business.

The fact of the matter is that Canada is an "economic colony", currently of the US, previously of the UK and France, and soon to be of China.

Canada has "enjoyed" the highest level of foreign control of strategic industries/resources of any of the "most developed" nations, mostly due to the fact that we don't have a large enough domestic market for our huge supply of resources and are thus export dependent.

Those who bitch and moan about Canada's occaisional rejection of a foregn takeover are either ignorant, or being disengenous; all one has to do is a comparative survey of other countries' willingness to give up control of key sectors of their economies.

Former Liberal cabinet minister Eugene Whelan has called for the price of potash to be controlled by government instead of the free market. He said the Third World needs potash for food crops and it's immoral to charge them high prices.

Ted: But recognizing those difficult realities does not mean I think he should have rejected the deal. I am very much an open markets kind of guy.

Hmm, my mistake then. I understood your talk about the threat to Canpotex and "losing yet another Canadian resource company to foreigners under Harper" to mean that you wanted the deal to be blocked. My apologies.

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